Merger and Acquisition is the combining of the assets of two companies to form a single entity. To be more specific, merger is the combining of two companies while acquisition refers to taking over of a target company by the acquiring company. Merger and acquisitions are tools for organizations to achieve their growth objectives, such as product diversification, entering new markets, enhancing market share, accessing new technologies, etc.
Mergers and acquisitions have shown significant growth throughout the globe in the last decade, and the trend still continues. India has not lagged behind either, and there has been a significant increase in the number of mergers and acquisitions firm in India. The main reason behind this spurt in M&A deals is that it is the easiest and quickest way for businesses to accomplish their growth plans.
Though there has been a remarkable increase in M&A transactions over the last few years, it would be pertinent to note that majority of those deals have failed. In fact less than 20 per cent of such deals have succeeded in achieving their proposed objectives. Though there could be various reasons for deals failing to achieve the desired objectives, the primary reason is attributed to employees not being able to adapt to the new culture leading to disenchantment and ultimately loss in productivity.
Employees are the key resource for any organization. Employee satisfaction is vital for every organization and it reflects in the performance of the companies. In mergers and acquisitions, the employees of the merged or acquired companies encounter serious cultural and structural challenges. They find it quite difficult to adapt to the new work and cultural environment. In cross-border deals, it’s all the more difficult to adjust. The management often fail to recognize this key aspect, and as such employees feel ignored and lose motivation and trust in the new management. Failure to properly address the human resource issue is the principal reason behind such a dismal success rate of M&A deals.
In this article we will discuss why it is important to address people issues and how to manage them in mergers and acquisitions.
Creating New Policies
It is important that the management of the new entity develop and communicate to the employees a compelling people oriented strategy to shape a new organizational culture. The strategy must focus on developing key policies, rules and regulations that influence employee behaviour and other workplace guidelines. The management should take steps to alleviate mistrust and insecurity at the workplace otherwise it could lead to lower employee productivity. Concerns of the employees from both companies should be properly addressed to enhance their participation and engagement.
Communicating with the employees during the process of mergers and acquisitions in India is critical to the success of the deal. Top management of the two merging companies are aware of whatever is happening in their companies, but the middle and lower level employees are usually not informed until the process is in the closure stage. Keeping the employees in the dark can have serious implications on the success of the transaction. If the employees are not taken in the loop, it can result in anxiety and stress among the employees. The management needs to take the employees into confidence by explaining to them the rationale behind deal and how it would be beneficial for all concerned. At the same time, employees should also be encouraged to raise their concerns. Honest communication with the employees can instil confidence and a sense of security among the employees.
Retaining key employees is crucial for the success of the new entity. It is, however, a major challenge as employees usually have negative attitude towards such deals, and there morale is also low. There is uncertainty in the atmosphere with respect job security, leadership credibility, and the overall organizational goal. It is vital on part of the management to take all possible steps to keep employee turnover to as low as possible, at least in the initial stages after the deal closure. In this context, it is a good idea to meet the key employees even before the deal is closed, and assure them that their position and standing in the new organization would not diminish. There has to be a proper communication with the employees to reaffirm their faith in the organization.
Addressing the Cultural Issues
Mergers and acquisitions are not only the combining of assets of two companies, but it is also the amalgamation of two different cultures. Lack of cultural fit adversely affects the morale of the employees. Employees tend to carry forward the culture of the previous organization and stick to their underlying values and beliefs. In domestic M&A the mismatch is limited to the office culture, but in cross-border transactions, the problem is even more aggravated. Dissimilarities in culture, both office and general, can have far-reaching implications. It is, therefore, very important that the cultural issues be discussed well before the deal is closed so that an effective strategy can be worked out to smoothly transition the employees into the new cultural environment.
Managing Human Resource in M&A is critical to the success of the deal, and all steps should be taken to address and resolve employee issues.